Refining airline economics

Dino D'Amore
By Dino D'Amore November 12, 2013 18:11

Refining airline economics

It will be interesting to watch Delta Air Lines in the near future as its Trainer refinery gears-up to produce 40,000 barrels of jet fuel per day. The effect on the airline and on group profits could well be impressive after the initial drag. Of course Emirates results point to the fact that oil prices, although stable, still cannot filter down to jet fuel as all would like due to the sheer lack of refining capacity on a global scale. Indeed, without significant investment to bring new refineries online within this decade, aircraft will start to be grounded in some regions due to shortages as deliveries of aircraft continue to increase heavily. As we mentioned at the time, the Delta move to secure the Trainer refinery may well be one of the best decisions by any airline management team anywhere ever.

At the very least we can be absolutely sure that the spread between jet fuel and other benchmarks such as crude and heating oil will increase as the global aircraft fleet increases. Airlines need to do more and there is opportunity now for some airlines to club together either as regional groupings or as alliance groups to either purchase stocks in bulk or indeed go down the route of purchasing a refinery to service their needs. Of course this chain of thought leads us directly to consider the fate of older less efficient aircraft, as in this future that we see mapping out before us it is not so much about crude prices but about refining capacity that will in any event and no matter what happens to crude, drive up the cost of jet fuel steadily year on year. That in turn should drive some low-cost carriers to consider the benefits of larger aircraft such as the A380 as it will assist no end in cutting costs of fuel, maintenance and fees and thus improve economics. Of course the one thing preventing this from becoming reality in most cases is the ability to finance the very big A380 ticket.

Right now Skymark Airlines is considering several options to raise funds for its A380s on order. Skymark is considering sale and lease back options, which would be very difficult indeed. An export credit deal with a tax lease attached such as the Air France deal would be something to base thoughts upon at Skymark as they have little time remaining to think of something as August 2014 is the first delivery and New York services are due to follow in December 2014. Skymark is an example that could have benefited from the Doric A380 lease program, but it came too late for them.

Airbus will do everything to assist Skymark that is for sure.

Meanwhile SIA margins have increased as it reported a sharp rise in its fiscal second-quarter net profit. Net profit in the three months ended Sept. 30 was 160.6 million Singapore dollars (US$128.4 million) compared with S$90.1 million in the same period last year. Look at the detail though: aircraft sales are in these figures and from what we can see SIA is discounting heavily at this time to stabilize market share. Even so an operating profit of S$$97 million was posted, a 15.5% improvement year-on-year, as an S$81 million increase in revenue outpaced a S$68 million increase in expenditure.

Dino D'Amore
By Dino D'Amore November 12, 2013 18:11
No Comments Yet!

Let me tell You a sad story ! There are no comments yet, but You can be first one to comment this article.

Write a comment

Only <a href="http://www.aviationnews-online.com/wp-login.php?redirect_to=http%3A%2F%2Fwww.aviationnews-online.com%2Feditorial-comment%2Frefining-airline-economics%2F"> registered </a> users can comment.